We have just come out of National Wills Week, which is a great initiative aimed at creating awareness around the benefit of having a Will (Last Will and Testament). Having a Will doesn't necessarily solve all your Estate problems, and I thought, at this time of heightened awareness, to discuss a few other essentials that should be considered quite carefully.
Enough articles are floating around that discuss a Will, so I'm going to limit my comments here - other than to say that you must have a Will and you should you do your best to make your Will simple:
There are two other notes around your Will:
Executor – you should select an Executor that has experience, and that understands the various assets in your Estate. If assets, like retirement assets for instance, are dealt with incorrectly there could be adverse tax consequences.
When you die, your Executor is left to sort out your affairs, and this can take longer than necessary if you leave your Executor unprepared. You should give your Executor an itemised list of all the assets he/she has to deal with, including reference numbers, and, if applicable, the locations. If you are a related party to a Trust or company, you must also make the Executor aware of any loan accounts to or from the Trust/company, as these could be either an asset or liability in your Estate. Lastly, if you're a shareholder in an unlisted company, discuss this with the Executor; introduce them to the accountants and let them know if there are things like buy-and-sell agreements in place.
The premise of a Will is that it instructs your Executor on how to distribute your Estate. There are probably several investments in your portfolio that are contractual assets, which will be distributed according to the terms of the contract, irrelevant of what your Will says. Some of the assets that are governed by contract are, among other things:
It is only in unconventional circumstances where a Will may be considered in the distribution of the above list.
An interesting category in the above list of contractual assets are the pre-retirement assets. The Trustees of the pre-retirement fund (retirement annuity, preservation fund, pension fund and provident fund) are bound by Section 37 of the Pension Funds Act to look for any dependents before paying away to the nominated beneficiaries; a dependent is legally first in line to receive pre-retirement assets. An example of this would be where a child is born out of wedlock. If the child was not nominated as a beneficiary, they might still have a legal right to some or all of the retirement asset.
Contractual assets, often, have two very appealing characteristics
The assets can be distributed once the death certificate and Letter of Executorship have been issued. This means that the beneficiaries can receive the value of these assets within a few weeks of the deceased's death. This must be considered in contrast to assets dealt with in the Will which can often only be distributed once an Estate is wound up (usually around 12-18 months) unless the Executor has carefully examined the net position of the Estate and is prepared, at their risk, to give the beneficiary an advance.
There are no Executor fees so long as the nominated beneficiary is someone other than the Estate. Please do not confuse this benefit, as sometimes happens, with not having to pay Estate Duty which is still applicable. In fact, Estate Duty may have to be recovered from beneficiaries.
It's not always possible to deal seamlessly with your offshore assets via your local Will. Probate is the entire process of administering a deceased person's Estate, and this process differs from jurisdiction to jurisdiction. Your foreign assets may require their own probate if you only have a South African Will; obtaining probate in the foreign court can delay the administration process and be quite costly (local Will needs to be sealed, notarised and sent to an attorney/barrister offshore to comply with their formalities) when obtaining this grant of probate. Introducing foreign probate can add time delays and costs; this can be partially offset by having a specific foreign Will to deal with those assets. If you do have a foreign Will, you must double-check that your local Will doesn't revoke this or is said another way; your local Will must expressly exclude the assets dealt with in the offshore Will.
Another indirect consideration is that some assets held in certain foreign jurisdictions, most notably the UK and the US may be subject to inheritance tax (in the UK) and estate tax (in the US) under the law of Situs (i.e. where an asset is treated as being situated or located for legal purposes). In the US this results in tax at up to 40% for asset bases over $60,000. Tn the UK, it means tax at 40% for asset bases over £325,000.
Foreign wrappers (endowments) can provide a neat solution for both probate and situs considerations; I'm not going into the detail in this article, but your financial advisor should have the answers.
It can get expensive to die; estate duty, deemed Capital Gains Tax (CGT) on all your assets, legal costs, executor fees, and burial costs. Your Estate plan needs to go beyond deciding who gets what and include making sure that your Estate has the necessary liquidity to cover all the costs. A neat way to provide for this liquidity can be with a life policy - however, depending on your asset mix and worth, it may not be necessary.
In closing, National Wills Week has hopefully given many of you a reminder to take care of this often neglected, yet critical, aspect of our lives. A further hope is that my article has given you something to think about that's a little more holistic than the Will itself.